Trademark Fraud Is in Congress’s Crosshairs in Proposed Legislation

May 11, 2020 – AlertsBy Melissa E. Scott

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If enacted, the aptly named Trademark Modernization Act of 2020 will better protect the relevant consuming public from confusion regarding the source of goods and services by implementing procedures that the U.S. Patent and Trademark Office – and trademark owners and applicants – can use to combat fraudulent trademark filings more expeditiously and less expensively.

Introduced in March 2020 with rare bipartisan support, the bill is in large part a reaction to the increased fraudulent trademark filings that the USPTO has seen over the past two years, many of which originate from persons and entities in China.

With limited exceptions, a trademark owner must use a mark in interstate commerce in the United States before the mark can qualify for registration. One of the Act’s primary goals is to reduce the issuance of registrations that falsely claim use of a mark that the registrant has not used in the requisite manner.

In recent years, the USPTO has seen a significant uptick in the number of registrations issued and/or maintained for marks that registrants either never used or no longer use, as required under U.S. trademark law. The issuance and maintenance of such registrations is, in many instances, the product of doctored photos or marketing materials that trademark applicants or owners have submitted to the USPTO falsely claiming that the subject mark is currently in use. The USPTO has noticed a higher rate of incidence of this problem in connection with applications and registrations owned by persons or entities located in China.

The existence of these “unused” marks on the federal trademark registers is particularly damaging to new market participants, who want to develop a brand for their products and services, and obtain protection for viable marks, but find their path to registration blocked by unused marks. As the system currently stands, proving that a party fraudulently secured registration of a mark, such that the USPTO can cancel the registration, requires a trademark cancellation proceeding – a lengthy and expensive proposition.

The Act proposes, among other things, a number of procedures to more easily clear the registers of unused marks.

First, the Act would codify procedures allowing third parties to submit evidence during the examination of a trademark application, including, without limitation, evidence that the applicant’s claims of use of the subject mark are false and/or inaccurate.

Second, the Act would create two new ex parte procedures – expungement and reexamination – that would allow the USPTO to cancel registrations for unused marks.

Expungement

The Act proposes to amend the Lanham Act to allow any person to file a petition to expunge a registration on the ground that the subject mark has never been used in commerce on or in connection with some, or all, of the goods or services recited in the registration. If the petition set forth a prima facie case of nonuse, the Director of the USPTO would forward the petition to the registrant and an expungement proceeding would commence.

The expungement procedure would follow the same procedure for examination of an application. If the examiner found that the mark has not been used on or in connection with some, or all, of the recited goods and services, the examiner would rule that the registration should be canceled as to each good or service for which the mark has not been used in commerce. Unless overturned on appeal of the examiner’s decision, the Director would issue an order cancelling the registration, either in whole, or in part.

The proposed amendment would also allow the Director to file an expungement proceeding on his own initiative in the event that he discovered information setting forth a prima facie case of nonuse.

Reexamination

The Act also proposes to amend the Lanham Act to allow any person to file a petition to reexamine a registration on the ground that the subject mark was not used in commerce on or in connection with some or all of the recited goods or services “on or before the relevant date.” For use-based applications, the “relevant date” would be the date on which the registrant filed the application. For intent-to-use applications, the “relevant date” would be the date on which the registrant filed an amendment to allege use.

The reexamination procedures would generally follow the procedures outlined above with respect to an expungement proceeding.

The fundamental difference between reexamination and expungement is that, in an expungement proceeding, the registrant would need to produce evidence showing that it had ever used the mark. In a reexamination proceeding, the registrant would need to show use of the subject mark before the registration issued.

Restoration of Injunctive Relief in Trademark Cases

The Act also seeks to amend the Lanham Act to resolve a circuit split that arose on an important trademark question following the U.S. Supreme Court’s ruling in a patent case, eBay, Inc. v. MercExchange LLC, 547 U.S. 388 (2006), and to restore injunctive relief in trademark cases.

Prior to eBay, a trademark owner who prevailed in an infringement lawsuit was entitled to a presumption that the court would enjoin the competitor’s continued use of confusingly similar marks to avoid causing further consumer confusion. In eBay, the Supreme Court held that, in the patent context, no presumption of entitlement to an injunction existed. Thereafter, a circuit split developed over whether a presumption of irreparable harm exists if a trademark owner proves a trademark violation.

The Act proposes to amend the Lanham Act to clarify that a rebuttable presumption of irreparable harm exists if a trademark owner proves a trademark violation.

Takeaways

The Act has not yet passed and it could be quite some time before parties can take advantage of the proposed expungement and reexamination procedures. However, these procedures could prove invaluable to third parties seeking to invalidate registrations based on false claims of use.

The procedures would streamline the cancellation process and result in quicker resolutions than a trademark cancellation proceeding. Further, the procedures would save third parties significant time and expense by requiring the USPTO to take the laboring oar on the issue of cancellation.

Unlike in a cancellation proceeding, once a party submitted its initial evidence to the USPTO, the USPTO would handle all work for expungement and reexamination proceedings – i.e., demanding additional evidence from the registrant. If the registrant failed to provide the requested evidence, the USPTO could cancel the registration entirely, or in part for specific goods or services recited in the registration.

Additionally, the expungement and reexamination proceedings could prove effective deterrents to parties seeking to submit fraudulent evidence of use of a mark to secure registration in the USPTO.

Notwithstanding the pros of expungement and reexamination, certain limitations would affect the availability of these procedures. For example, a party could not request expungement until at least three years after the registration issued. Conversely, a party could request reexamination only between the first and fifth years of registration.

Further, parties could take advantage of expungement and reexamination proceedings only in cases where there is evidence that the subject mark has never been used in commerce on or in connection with recited goods and services. If the registrant started using the mark, then stopped using the mark, expungement and reexamination would not be the proper mechanism for seeking to cancel the mark. Instead, a party would need to file a cancellation proceeding with the U.S. Trademark Trial and Appeal Board.

To be sure, the Act would significantly change the current U.S. trademark system. However, it could take years to measure the effects, if any, that the proposed amendments have on efforts to forestall or at least decrease instances of fraudulent trademark filings.